Alistair Darling yesterday signalled that more public money could be ploughed into the troubled Lloyds-HBOS superbank.

Asked whether he was prepared to expand the taxpayers' investment in the newly merged bank, whose shares plunged 32% on Friday after it revealed £11bn losses at HBOS, the chancellor said he would not discuss "any individual institution", but added: "We will do whatever is necessary to maintain the stability of the financial system."

Darling, who was in Rome attending a meeting of the finance ministers of the G7 leading industrialised economies, said he believed banks were "best run on a commercial basis in the private sector". Downing Street sources yesterday quashed rumours that the bank may now have to be nationalised, insisting that such speculation was "completely overblown".

However, one option remains for the preference shares that Lloyds sold to the government to be converted into ordinary shares, effectively increasing the taxpayer's stake in the bank.

Last night it emerged that Lloyds is still planning to award bonuses this year worth a reported £120m for retail and commercial staff. A spokesman for the bank refused to comment on specific figures but said: "We have stretching performance targets and if they are met, we believe it is right that colleagues receive some financial recognition. In most cases, this means an annual bonus of £1,000 or less."

All eyes will now be on the opening share price of the Lloyds group tomorrow morning when the London stock market opens.

Shadow business secretary Kenneth Clarke said that the government's forced merger of HBOS and Lloyds TSB should have been abandoned when it became clear how much state support was needed, arguing that Lloyds was "a boring bank, it was a steady bank" and should not have been allowed to be dragged down by its new partner. Former Tory chancellor Lord Lamont warned Britain faced a "severe depression" unless the banking system was fixed fast.

Lamont said: "What has happened with Lloyds TSB/HBOS is truly scandalous. The government bears a huge responsibility for what has happened. It encouraged the merger, the prime minister personally claimed the credit for it, and the government - despite many warnings - suspended the competition rules so that the merger could happen."

Yesterday one senior banking executive suggested ministers should even examine the possibility of unpicking the merger and nationalising HBOS, adding: "It should be possible because the two banks have not had time to make much of a marriage."

However, Downing Street defended the decision to invest £17bn of taxpayers' money in the merged bank, insisting that the decision remained "in the national interest".

"If the merger hadn't taken place, then almost certainly we would have had to have nationalised HBOS: the taxpayer would have taken all the losses and HBOS would probably have to have been broken up," said a senior Downing Street source. HBOS's losses, while more severe than expected, were not significantly worse than had been originally anticipated, he added.

A spokesman for Lloyds rejected suggestions of nationalisation and suggested that scrapping the merger was out of the question: "We very much remain of the view that the deal was the right transaction for our company. We have made it clear that the short-term outlook is challenging, as it is for virtually every bank, but the medium-term prospects are very good."

However, City sources said Daniels was now fighting for his career, while Lloyds faces a round of meetings with angry shareholders this week, seeking clarification of Friday's statement and its implications. "We are concerned about what that means for bank losses in 2009," said one leading shareholder.